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Health and welfare plans include health, dental, vision, wellness, life, short and long term disability, and other non-retirement benefits. These plans are subject to a variety of regulatory requirements under both the Code and ERISA which can include nondiscrimination requirements, continuation
coverage obligations (COBRA), privacy requirements (HIPAA), and numerous reporting and disclosure requirements. Many of these benefits can be provided to employees without including the value of the benefits in their income, plus employees often pay their share of benefit premiums on a pretax basis through a cafeteria plan. A careful analysis of each benefit provided by an employer must be conducted to understand its tax, compliance, and administrative requirements. This section describes some of most significant regulatory provisions that apply to group health plans.
Health Care Reform
The Patient Protection and Affordable Care Act of 2010 (PPACA) has changed the landscape of employer-sponsored health care coverage. PPACA amended portions of the Code, ERISA, and the Public Health Service Act to establish coverage mandates that apply to private and public employers alike. PPACA also imposes new reporting obligations on employers and will require large employers to pay a fee if their employees receive subsidized health coverage through a State exchange beginning in 2015. Following are some of the main provisions of PPACA that impact employer group health plans.
Coverage mandates: Employer-sponsored group health plans must already comply with several coverage mandates under PPACA, which include: (i) extending dependent child coverage to age 26; (ii) eliminating annual and lifetime limits on essential health benefits; (iii) eliminating preexisting condition exclusions with respect to enrollees under age 19; and (iv) prohibiting retroactive cancellations of coverage except in the case of fraud or intentional misrepresentation. Plans that are not “grandfathered” under PPACA must also cover preventive services without cost-sharing requirements and provide for an external review of claims that are denied at the plan level. Plan documents and summary plan descriptions should reflect these new changes. Additional coverage mandates went into effect in 2014, including requirements for plans to completely eliminate pre-existing condition exclusions and to eliminate waiting periods longer than 90 days to enter a health plan. Non-grandfathered plans must also limit an employee’s total out-of-pocket expenses in health plans, provide coverage for certain clinical trials, and eventually eliminate provisions that discriminate in favor of highly compensated employees in insured health plans.
Employer “shared responsibility” (or penalty) provisions and reporting: PPACA’s shared responsibility provisions under Internal Revenue Code Section 4980H are generally effective as of January 1, 2015 and apply to employers with at least 50 full-time employees (including full-time equivalents). These “applicable large employers” will be required to pay penalties if: (i) they do not provide minimum essential health coverage to at least 95% (70% in 2015) of their full-time employees (and their children under age 26); and (ii) at least one of their full-time employees receives a premium tax credit or cost-sharing reduction (a “subsidy”) for purchasing individual coverage through a health insurance exchange (or “marketplace”). This penalty is equal to an annual amount of $2,000 per full-time employee (minus the first 30 employees). An employer might also face a penalty if a full-time employee receives a subsidy on a marketplace if the coverage offered to the employee is not “affordable” or does not provide “minimum value.” This penalty is equal to an annual amount of $3,000 per full-time employee who receives a subsidy. For these purposes, a “full-time employee” is one who is employed to perform at least 30 hours of service per week, on average. Generally, coverage is “affordable” if the employee’s share of single-only coverage does not exceed 9.5 percent of his or her household income, and a group health plan provides “minimum value” if it is designed to pay at least 60 percent of the costs incurred under the plan. This mandate will require employers to carefully track their employees’ hours to determine which employees meet the 30-hour standard and to offer coverage to those employees to avoid potential penalties. To enforce and administer these mandates and PPACA’s individual mandate (which requires most U.S. residents to obtain health insurance coverage), the Internal Revenue Service (IRS) must obtain various information about taxpayers’ health coverage. Employers and their group health plans are subject to these detailed reporting requirements beginning in the 2015 calendar year. All employers who offer selffunded plans and insurers generally must file a return with the IRS and provide an individual statement to each individual who is covered by plans that constitute “minimum essential” coverage. This report will include information about employer and each person covered under the employer’s health plan, and the months during which each individual was covered. In addition, employers subject to the PPACA’s shared responsibility provisions must also file a return with the IRS and provide an individual statement to each full-time employee with information regarding the offer of employer-provided health care coverage. The report will include information about the employer, its group health plan, the cost of the group health plan, and information about each of the employer’s full-time employees and whether they were covered under the employer’s group health plan for each month in the year. The first of these annual reports to the employees will be due by January 31, 2016, and the first reports will be due to the IRS by February 28, 2016 (March 31 if filed electronically). Employers should begin preparing now to collect the detailed information that will be required by these reports.
Health FSA changes: If an employer allows employees to pay for qualified medical expenses through a health flexible spending arrangement (health FSA), the health FSA may no longer reimburse for over-the-counter medications unless the medications are prescribed or are insulin. This restriction also applies to health savings accounts and health reimbursement accounts. In addition, an employer must limit employee contributions to a health FSA to $2,500.
W-2 reporting: Employers must report the aggregate cost of each employee’s employer-sponsored health coverage. The IRS has issued guidance on what coverage must be reported on the W-2 (e.g., most dental and vision plans are exempt) and how the aggregate cost should be computed. Employers may need to modify their administrative practices and payroll systems to enable them to track these amounts accurately.
SBC disclosure: Employers must provide eligible employees with a summary of benefits and coverage (SBC) that describes the terms of the employer’s health coverage. The Departments of Labor, Health and Human Services, and the Treasury have released a template that a plan sponsor must use to satisfy the content and format requirements of the SBC. Employers need to discuss the SBC with their insurers or third party administrators to properly allocate responsibility for this disclosure requirement. This requirements is in addition to the summary plan description requirement that applies to plans covered by ERISA.
New fees: PPACA imposes two critical new fees on employer group health plans. The Patient Centered Outcomes Research Institute Fee applies to plans with plan years ending on or after October 1, 2012 and before October 1, 2019. The fees are due each July 31. The fee is $2 ($1 in case of plan year ending before October 1, 2013, and indexed for inflation for plan years ending after September 30, 2014) multiplied by average number of lives covered under the plan. The Transitional Reinsurance Fee is a much more significant fee. It is designed to provide a reinsurance safety net to insurers that may experience excessive claims from 2014-2016 as a result of insurance market reforms. It requires insurers and self-insured group health plans to pay a fee to fund this reimbursement source. The first installment for the 2014 fee will be due in January, 2015. The fee for 2014 is $63 per covered life under a health plan and is $44 per covered life in 2015.